thurstonxhowell:Great Janitor: Stuffing your money under your mattress or in a coffee can means you don't lose money

Wait, I thought I was losing money to inflation in my 401k. How am I not losing money to inflation in my coffee can?

Because your 401K is only earning money in the market (on top of any employer contributions) while your money in a coffee can is not losing value because ... well, it involves Quantum Mechanics so I don't think you would understand.

Great Janitor:Banks aren't great at investing, given that a CD is less than 3%. So you'll actually lose money compared to inflation. A 3% matching 401k still doesn't work due to inflation, which is why I've always turned down 401k options (also, if you need your money from a 401k before retirement you get hit with double taxes and double penalties).

If you put in 6%, and your employer puts in a match of 3%, then 9% is going into the 401K. That's a 50% boost.The returns would have to be pretty low for inflation to eat that up I think

Look after I took a couple of economics courses I realized that the only way to even have a moderate amount of wealth for retirement is to become a rent seeker. That is why I'm in favor of licenses, unions, and high barriers to entry into professions and business. The game is rigged, the only way to win is to cheat.

hej:So for the financial rubes here, if dumping money into a 401k isn't good enough, what is?

I don't understand the question. A 401(k) is just a way to the masses to invest money tax free. So are IRAs. So are pensions. The difference is that your employer might contribute to your 401(k), which is part of your total salary package. If it's offered then take it.

In a pension system the employer is fully responsible for investing the money and making sure you get it at retirement. The difference between the two is who's on the hook if insufficient money was invested while the employee was working for the employer. In a 401(k), it's the employee's problem. In a pension it's the employer's problem. That's why there are no pensions anymore. Pensions that still exist have managers who worry over where they're going to find investments that make enough return to pay everyone who is supposed to be receiving benefits.

An IRA isn't in effect much different from a 401(k) but your employer probably won't contribute to it. It's something you can do if you've maxed out your 401(k) contributions and want (and can afford) to save even more. Or, you can open one after you leave your job and the old employer makes your 401(k) money available for rollover. That's what I did.

The question is, what investments are *in* the fund? Basically what this article is fussing about is the fact that there's no easy way to get a high return anymore unless you are investing in business that are big in Brazil and India. But then, when was it ever easy? People talk about the early '80s and the 5% rate on their savings accounts as if that was a good thing, but loan interest rates and inflation were also terrifyingly high at the time. People biatch about inflation, but if you found a newspaper from Clinton's second term (which is now some 15 years ago) and looked at the sale flyers in it and compared prices, you might be surprised at how close they are to today's prices. Returns nowadays are low because they don't need to be high, and that's because prices for consumer goods (not including healthcare and college tuition) aren't rising that fast.

The kind of price inflation you see nowadays in college tuition and health care? Those kinds of price increases applied to EVERYTHING in the '70s. Like how the price of postage went up 33% in eight months in 1981......

you're supposed to own everything you need when you retire. I'll own my house at 60, i'll presumably trade in my power image car, for a mid-90s beige crown vic, i'll cancel internet and start getting not-newspapers, i'll eat bland food and drink cheap whiskey, and i'll take up gardening as a hobby.

plcow:Aarontology: Almost makes the destruction of pensions look like a bad idea, doesn't it?

Pensions are a crap idea anyway. I would much rather have a slightly higher salary upfront and be responsible for my own savings.

Great_Milenko: SlothB77: if we are screwed anyway, let's get rid of Social Security then.

Things are bad. Let's make them worse!

Same thing with social security.

Also, I am baffled by people who rely on either of these for retirement. Seriously, people have been saying how dumb these programs are for years now. It's nice to be ideological every once in a while, but you would bet your starvation on it? It's like ND Tyson said about science. "It's true no matter what people think or say" Same thing with social security. It's a fundamentaly bad system no matter what people think. Don't rely on it and start saving now in an IRA or regular ol' taxable account (once you've maxed your IRA contributions).

Social Security, currently can pay 70% of promised obligations forever.

I am stuck at step two of my reirement plan. Step one is taking out a very large insurance policy on the wife. But for set two, I for the life of me cannot meet up with a morally unscrupulous individiual on all of my train travel.... anyone have any ideas? I was thinking going to Craigslist, is this a bad idea?

Great Janitor:I've known people who knew how to super inflate their Universal Life Insurance policies and pull it off.

If I only get through a single point in this thread, here it is. For the love of god, please do not allow anyone you care about to buy one of these idiotic policies. You may have one or know someone who does. It may have had a lot of money in it - great. It would have had a lot more if they'd invested that same money in a different savings vehicle.

Great Janitor:Inflation is 5%, so any program that doesn't match increase at 5% or more is losing value

Get yourself some professional financial help immediately!

Let's say that your company matches 50% of your contribution up to 6%, for a total company contribution of 3%, which is common. So if you make $10,000 you'll put $600 of it into your 401k. Your company will put in $300. You invested $600 and you have $900 immediately. That's a 50% return instantly! And a 401k is just a tax-advantaged investment account. So, you invest all that money. So you put that $900 into stocks or bonds or whatever and it makes whatever gains it makes (hopefully outpacing inflation).

My advice to Farkers starting out (and remember what you paid for it) is to invest for retirement in this order (i.e. As you have more to invest, work your way down the list):

1) Contribute enough to your company 401k to get the maximum employer match. Do this no matter what. That match is free money! If your company offers a Roth 401k (somewhat rare), you'll probably want to go with that.2) If you are financiallly disciplined enough to know that you'll follow through, put any additional retirement money into a Roth IRA. You pay taxes on money you invest into a Roth retirement account up-front and the withdrawals/gains are not taxed when you retire. For most people, this will save you a ton of money in taxes in the long run. Additionally, IRAs give you a bit of flexibility that 401k's don't.3) If the Roth IRA gets maxed out, then increase your 401k contribution until you get to the max there.4) If you're maxing out both the IRA and the 401k, then you should really be getting advice from the guy you pay to haul around your wheelbarrows of money and not some guy on Fark. But the next step is to open a taxable brokerage account somewhere.

Aarontology:Almost makes the destruction of pensions look like a bad idea, doesn't it?

This, Wall Street talked us into losing any sense of value for work. We had to put our money all in the hands of the Olympian "risk-takers" right? Well, what is more risky than devoting your entire life to working for a wage without any guarantee that your lifetime of labor will result in anything but an impoverished old-age?

pdieten:hej: So for the financial rubes here, if dumping money into a 401k isn't good enough, what is?

I don't understand the question. A 401(k) is just a way to the masses to invest money tax free. So are IRAs. So are pensions. The difference is that your employer might contribute to your 401(k), which is part of your total salary package. If it's offered then take it.

In a pension system the employer is fully responsible for investing the money and making sure you get it at retirement. The difference between the two is who's on the hook if insufficient money was invested while the employee was working for the employer. In a 401(k), it's the employee's problem. In a pension it's the employer's problem. That's why there are no pensions anymore. Pensions that still exist have managers who worry over where they're going to find investments that make enough return to pay everyone who is supposed to be receiving benefits.

An IRA isn't in effect much different from a 401(k) but your employer probably won't contribute to it. It's something you can do if you've maxed out your 401(k) contributions and want (and can afford) to save even more. Or, you can open one after you leave your job and the old employer makes your 401(k) money available for rollover. That's what I did.

The question is, what investments are *in* the fund? Basically what this article is fussing about is the fact that there's no easy way to get a high return anymore unless you are investing in business that are big in Brazil and India. But then, when was it ever easy? People talk about the early '80s and the 5% rate on their savings accounts as if that was a good thing, but loan interest rates and inflation were also terrifyingly high at the time. People biatch about inflation, but if you found a newspaper from Clinton's second term (which is now some 15 years ago) and looked at the sale flyers in it and compared prices, you might be surprised at how close they are to today's prices. Returns nowadays are low because they don't need to be high, and that's because prices for consumer goods (not including healthcare and college tuition) aren't rising that fast.

The kind of price inflation you see nowadays in college tuition and health care? Those kinds of price increases applied to EVERYTHING in the '70s. Like how the price of postage went up 33% in eight months in 1981......

gshepnyc:Aarontology: Almost makes the destruction of pensions look like a bad idea, doesn't it?

This, Wall Street talked us into losing any sense of value for work. We had to put our money all in the hands of the Olympian "risk-takers" right? Well, what is more risky than devoting your entire life to working for a wage without any guarantee that your lifetime of labor will result in anything but an impoverished old-age?

Pensions are shackles. You don't dare leave the company until you're vested in the pension so you have to accept crap raises and poor treatment and can't take advantage of a lucrative opportunity at another company. However, if you get laid off before you're vested, you have nothing! Also, if the company goes bust a year or two before you want to retire, or even worse, a year or two after, you could lose a big part or even all of your retirement!

With a 401k, you own your retirement money. You can invest it however conservatively or aggressively you feel suits you. If you leave your company, that money is still yours and since your company has nothing to do with it once it's in your account, it's not at risk if your employer pulls an Enron. Also, assuming your company provides a reasonable match, you'll end up with more money in the long-run that you would with a pension.

E5bie:Great Janitor:Banks aren't great at investing, given that a CD is less than 3%. So you'll actually lose money compared to inflation. A 3% matching 401k still doesn't work due to inflation, which is why I've always turned down 401k options (also, if you need your money from a 401k before retirement you get hit with double taxes and double penalties).

If you put in 6%, and your employer puts in a match of 3%, then 9% is going into the 401K. That's a 50% boost.The returns would have to be pretty low for inflation to eat that up I think

But watch that 3% match get eaten by the 401K manager's fees (Fidelity takes 1%) and expense ratios on their funds (2%).

Seriously, the fees and default disbursement for my employer's 401K managed by Fidelity is that way.

AngryDragon:sigdiamond2000: It's one of the worst times to retire in recent history.

What does this sentence even mean?

It means that after gutting the entire social structure, the boomers are whining again that they have to face the consequences now.

Nah, we Boomers are in much better shape than you Gen-alphabetsoupers. Not as good as our Greatest Gen parents, but hey...they will all die off in their 80s and 90s while many of us Boomers will live twice as long, so I guess there's a trade off.

Parkanzky:gshepnyc: Aarontology: Almost makes the destruction of pensions look like a bad idea, doesn't it?

This, Wall Street talked us into losing any sense of value for work. We had to put our money all in the hands of the Olympian "risk-takers" right? Well, what is more risky than devoting your entire life to working for a wage without any guarantee that your lifetime of labor will result in anything but an impoverished old-age?

Pensions are shackles. You don't dare leave the company until you're vested in the pension so you have to accept crap raises and poor treatment and can't take advantage of a lucrative opportunity at another company. However, if you get laid off before you're vested, you have nothing! Also, if the company goes bust a year or two before you want to retire, or even worse, a year or two after, you could lose a big part or even all of your retirement!

With a 401k, you own your retirement money. You can invest it however conservatively or aggressively you feel suits you. If you leave your company, that money is still yours and since your company has nothing to do with it once it's in your account, it's not at risk if your employer pulls an Enron. Also, assuming your company provides a reasonable match, you'll end up with more money in the long-run that you would with a pension.

Pension vesting has been lowered to 5 years or less*. The days of 20 year vestments are gone.

Chagrin:E5bie: Great Janitor:Banks aren't great at investing, given that a CD is less than 3%. So you'll actually lose money compared to inflation. A 3% matching 401k still doesn't work due to inflation, which is why I've always turned down 401k options (also, if you need your money from a 401k before retirement you get hit with double taxes and double penalties).

If you put in 6%, and your employer puts in a match of 3%, then 9% is going into the 401K. That's a 50% boost.The returns would have to be pretty low for inflation to eat that up I think

But watch that 3% match get eaten by the 401K manager's fees (Fidelity takes 1%) and expense ratios on their funds (2%).

Seriously, the fees and default disbursement for my employer's 401K managed by Fidelity is that way.

Yeah, there should be a law against fleecing 401(k)s with management fees. I'm lucky. The funds I hold have a total expense ratio of 0.08% and the brokerage is still making money.

Great Janitor:Social Security has a negative rate of return. We're supposed to pay into it today so we can retire on it, but we get less money back than we pay in. We'd be better off with ANY other form of retirement planning. Hell, I'd be better off taking the money I pay into Social Security, taking it to the casino and playing roulette with it. At least that way I could possibly see some gain with it.

SS isn't a retirement account. It's retirement insurance. If you die early, there is no left over money in an unused account. If you don't die fast enough, you still get paid after a retirement account would have been gone.

Aarontology:Almost makes the destruction of pensions look like a bad idea, doesn't it?

I see that the pension funds in Detroit are suing to keep the city from declaring bankruptcy. I would rather have a self managed fund than depend on a city or company to still be in existence and fiscally sound 30 years from now.

Chagrin:E5bie: Great Janitor:Banks aren't great at investing, given that a CD is less than 3%. So you'll actually lose money compared to inflation. A 3% matching 401k still doesn't work due to inflation, which is why I've always turned down 401k options (also, if you need your money from a 401k before retirement you get hit with double taxes and double penalties).

If you put in 6%, and your employer puts in a match of 3%, then 9% is going into the 401K. That's a 50% boost.The returns would have to be pretty low for inflation to eat that up I think

But watch that 3% match get eaten by the 401K manager's fees (Fidelity takes 1%) and expense ratios on their funds (2%).

Seriously, the fees and default disbursement for my employer's 401K managed by Fidelity is that way.

That depends on two things.

1. 401k manager fee: The average is 0.78% (yes, that is too high in my opinion, but it's not 1%).2. 2% expense ratio is ridiculous. Choose better funds. I'm a big believer in Vanguard Indexes rather than hoping some fund manger his the jackpot and beats the market. 0.17% is the expense ratio of VFINX which my 401k offers.

So the fees are significantly less than what you're proposing IF you do it right. The average stock fund expense is 1.44% - highway robbery.

Great Janitor:thurstonxhowell: Great Janitor: A 3% matching 401k still doesn't work due to inflation, which is why I've always turned down 401k options

I'm not convinced you know what a 401k or an employer match is....

Inflation is 5%, so any program that doesn't match increase at 5% or more is losing value

Great Janitor: Stuffing your money under your mattress or in a coffee can means you don't lose money

Wait, I thought I was losing money to inflation in my 401k. How am I not losing money to inflation in my coffee can?

Grrr...I messed up that one. You don't gain interest, but you also don't lose money the way you would through Social Security, making it slightly better than Social Security.

A company match is typically somewhere between a 75%-100% ROI on your investment. That doesn't beat 5%?! And where are you seeing inflation at 5%? We almost had a deflationary year last year, and even relatively high inflation is still only around 3.5%.

Chagrin:E5bie: Great Janitor:Banks aren't great at investing, given that a CD is less than 3%. So you'll actually lose money compared to inflation. A 3% matching 401k still doesn't work due to inflation, which is why I've always turned down 401k options (also, if you need your money from a 401k before retirement you get hit with double taxes and double penalties).

If you put in 6%, and your employer puts in a match of 3%, then 9% is going into the 401K. That's a 50% boost.The returns would have to be pretty low for inflation to eat that up I think

But watch that 3% match get eaten by the 401K manager's fees (Fidelity takes 1%) and expense ratios on their funds (2%).

Seriously, the fees and default disbursement for my employer's 401K managed by Fidelity is that way.

All of your fund options have 2% expense ratios? That's ridiculous.

I have one fund that has an expense ratio over 1%. It's an international fund and I expect it to have higher expenses. All the rest have expenses under a couple tenths of a percent. Most are ~0.1%. This is with Fidelity and I don't pay Fidelity anything to manage my 401k.

Are you with a small company? Both my current and previous employers use Fidelity for 401ks. My previous company (very small, a couple hundred employees and low revenue) 401k choices generally had higher expense ratios than the options I have at my current employer (bigger company with thousands of employees and billions in annual revenue).

Please, don't tell people not to invest in their 401k's. First, they really are a good deal. The company match is one big advantage, but the tax savings is another huge plus.

If you start early, you'll accumulate a really nice chunk of change in 10 or 20 years.

But even if I am wrong, the solution to SS's woes is obvious: remove the caps and unearned income exclusion.

As long as the benefit continues to scale up, I have no problem removing the income cap. Unearned income is a different matter. If I save on top of what they take from me in SS, why should I be penalized because I was responsible with my money?

The problem is that over 30 years the money the government takes from me in SS could make for a fairly stable retirement. About $800K worth at historical returns. If I save outside of that, you're telling me that I just have to start giving up almost a million dollars because I was responsible?

So how many people buy a new house after they retire? This is why you're supposed to buy a house when you're young and working, so for the price of property taxes and maintenance you have someplace to live after you retire. Or sell it so you can afford a few years of rent in the senior home.

And chances are if you're retired then your doctor told you to lower your bacon consumption because it's bad for your heart condition. I tell you, getting old is hell.

Chagrin:E5bie: Great Janitor:Banks aren't great at investing, given that a CD is less than 3%. So you'll actually lose money compared to inflation. A 3% matching 401k still doesn't work due to inflation, which is why I've always turned down 401k options (also, if you need your money from a 401k before retirement you get hit with double taxes and double penalties).

If you put in 6%, and your employer puts in a match of 3%, then 9% is going into the 401K. That's a 50% boost.The returns would have to be pretty low for inflation to eat that up I think

But watch that 3% match get eaten by the 401K manager's fees (Fidelity takes 1%) and expense ratios on their funds (2%).

Seriously, the fees and default disbursement for my employer's 401K managed by Fidelity is that way.

Do you not get that the match is relative to your salary, not you contribution? If you invest 6% and your company match is 3%, then that's an instant 50% return. Even if your fees are 3%, you've still made well over 40% just by putting money into the 401(k). I happen to have a Fidelity 401(k). All of my fees are below 1%, and one is below 0.1%. Outside of the recession, my returns have been very positive.

I was working for a company that contributes a total of 0.9% to their employees' 401k's. So if you make $40k/yr, they're going to contribute exactly $30/mo to your retirement account. Gosh thanks! And they didn't pay very well, so it was extremely hard to put away much on your own. I changed jobs about a year ago, and while there were a few reasons to jump ship, the fantastic benefits at my new company were a huge draw.

Even if you max out your 401k, right now you'll just watch your investments get eaten by inflation if you choose the "safe" options.

If you're young (<40), get into 100% stocks right now. Diversify by putting a chunk in small caps, a chunk in mid caps, a chunk in large caps and another chunk overseas. Find funds with as low fees as possible, and have faith that the market will beat bond interest over the next 20+ years. Our retirement accounts are up ~18% YTD. Of course, we have bad years too, but the overall average has been pretty good.

If you're closer to retirement (~50's) and you haven't already socked away a big pile of cash, it seems pretty dire. About all you can do to prepare for retirement is get your expenses and expectations whittled down to the bone so that you can live on the pittance Social Security is likely to give you.

hungryhungryhorus:Aarontology: Almost makes the destruction of pensions look like a bad idea, doesn't it?

Yea, I know I for one would prefer to put all my eggs in one basket in the hopes that a company not only continues to exist 30-60 years from now but is still profitable and doesn't try to bully their way out of pension obligations.

/Seems to be working out well for soooo many of our elderly already...

Slaves2Darkness:Look after I took a couple of economics courses I realized that the only way to even have a moderate amount of wealth for retirement is to become a rent seeker. That is why I'm in favor of licenses, unions, and high barriers to entry into professions and business. The game is rigged, the only way to win is to cheat.

Welcome to the world of real estate appraising, come take our classes and get a real estate appraisal education. and when your done you can spend the rest of your time trying to find someone to be an apprentice under.

/a hint//you won't///Thank god I got mine and I'm the youngest appraiser in my area by 30 years, woot.

AngryDragon:Stone Meadow: mcreadyblue: There will never be a means test for SS.

Never?

[szwordsmithdotcom.files.wordpress.com image 640x612]

But even if I am wrong, the solution to SS's woes is obvious: remove the caps and unearned income exclusion.

As long as the benefit continues to scale up, I have no problem removing the income cap. Unearned income is a different matter. If I save on top of what they take from me in SS, why should I be penalized because I was responsible with my money?

The problem is that over 30 years the money the government takes from me in SS could make for a fairly stable retirement. About $800K worth at historical returns. If I save outside of that, you're telling me that I just have to start giving up almost a million dollars because I was responsible?

How about no.

It's called income redistribution. Fairly standard feature of advanced economies. It's how we keep the poor from suffering.

Parkanzky:gshepnyc: Aarontology: Almost makes the destruction of pensions look like a bad idea, doesn't it?

This, Wall Street talked us into losing any sense of value for work. We had to put our money all in the hands of the Olympian "risk-takers" right? Well, what is more risky than devoting your entire life to working for a wage without any guarantee that your lifetime of labor will result in anything but an impoverished old-age?

Pensions are shackles. You don't dare leave the company until you're vested in the pension so you have to accept crap raises and poor treatment and can't take advantage of a lucrative opportunity at another company. However, if you get laid off before you're vested, you have nothing! Also, if the company goes bust a year or two before you want to retire, or even worse, a year or two after, you could lose a big part or even all of your retirement!

With a 401k, you own your retirement money. You can invest it however conservatively or aggressively you feel suits you. If you leave your company, that money is still yours and since your company has nothing to do with it once it's in your account, it's not at risk if your employer pulls an Enron. Also, assuming your company provides a reasonable match, you'll end up with more money in the long-run that you would with a pension.

I'll remember to tell this to my uncle who lost all his money in 2008 in the stock market.

That job with a pension was a shackle, you did a good job taking the one with the 401k.

AngryDragon:As long as the benefit continues to scale up, I have no problem removing the income cap. Unearned income is a different matter. If I save on top of what they take from me in SS, why should I be penalized because I was responsible with my money?

The problem is that over 30 years the money the government takes from me in SS could make for a fairly stable retirement. About $800K worth at historical returns. If I save outside of that, you're telling me that I just have to start giving up almost a million dollars because I was responsible?

How about no.

I take your point, but at the end of the day it's like complaining that unearned income is taxed at all. Nobody wants to means test SS. Nobody wants to pay into it. Everybody wants to collect 100% of their calculated entitlement. Those three goals are mutually incompatible in any kind of reasonable long run, so something is going to have to give. I think it will be on the taxation side, as poor voters outnumber wealthy ones, and will demand continued benefits.